UC bond sale touted as win-win for Pa. firms

AFL-CIO says changes will lead to higher poverty, hurt middle class

//November 9, 2012

“Moving monies owed to the federal government because of our borrowing (for UC benefits) to a bond with a lesser interest rate and preventing annual increases in (business) taxes, there is nothing negative about it,” said Sam Denisco, vice president of government affairs for the Pennsylvania Chamber of Business and Industry.

The state swapped a variable interest rate with a floor of 2.9 percent for a fixed 1.29 percent rate — the lowest cost of borrowing rate for states that have issued similar bonds.

As a result, employers are expected to save at least $150 million in interest payments over seven years, according to the state Department of Labor & Industry.

“Any time you can minimize a tax or any kind of premium an employer has to pay to do business, it opens up the door for that business owner to reinvest,” Denisco said, referring to capital projects or the hiring of additional workers.

State officials had anticipated a rate of 1.8 percent and employer savings of $100 million.

“Borrowing at this rate is comparable to refinancing a mortgage at a ridiculously low rate,” Labor & Industry Secretary Julia Hearthway said in a statement.

Prior to the sale, the state paid down the federal UC debt to $2.8 billion once the majority of tax revenue came into the state.

The $3.2 billion sale covered the debt plus costs to issue it and benefits through the end of the year, including a $75 million bond reserve. It was made possible by a major UC reform bill signed by Gov. Tom Corbett in June.

That legislation tightened insurance benefits and eligibility. For example, workers who made 50.5 percent of their annual income or more in one quarter are no longer eligible for benefits under the new law — a change from the 63 percent limit.

In addition, the maximum weekly benefit was frozen at $573 through 2019.


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